Need Advise on a Joint Venture Dealing.

Discussion in 'Growing and Managing a Business' started by Jesu, Nov 3, 2012.

  1. Jesu

    Jesu
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    Hi,

    Am currently working but planning to quit and do business. This is my first Business venture & I need your advise on this joint-venture offer i have got.

    I was approached by a person who has already got a company & running an Educational program as business successfully in his country.
    he has also given franchise for many people in his country for his business idea.
    Now he wants to introduce the same business here in the country am residing at.
    I am from the same technical background. As he cant run here directly here
    He has offered 50-50 partnership with me so that instead of running the business in one dedicated
    location like a franchise i can run in multiple places in this country.
    I have set up a company here for this purpose and he will have a joint venture of 50% with the new company.
    I and My wife will be the local Directors here. We hold the bank sole signatory authority here.

    His Contribution: Training me in his Business Idea + Marketing
    My Contribution: Invest money and set up a Company here + Work & Run the business here.
    MOU is signed by both parties but not yet registered/stamped.
    Our Deal :
    1. I will be the one Investing for setting up the new company.
    I will be the only working partner here who is actually going to work & run the business.
    2. He will take a particular amount from the revenue for his idea/training he is going to give (as he does for franchise).
    3. Apart from that amount he will have 50% partnership in future revenues til the business is running here.
    4. Also 50% share in the Company am going to set up here.
    ( This is not in MOU.Share holders agreement is not yet done. Agreed only in our mail conversations).
    5. All Future business expenses and bills reimbursement here will be taken from the revenues we get here.
    (This also includes stay n tickets charges for every time either of us fly for meetings.)

    All for just using his idea/training + advantage that his business is already established in another country.

    Sometimes i feel his dealing should be ok as the idea is his & a joint venture with a successful company in another country
    is an advantage when we are going to use the same idea here.
    But many times i feel am Giving too much for what i receive.
    I want to do this business with a clear & happy mind and not feeling that i have settled for less or being used as am new to Business field.
    Please help me to know if this is a fair enough deal for both of us or just one party alone is sharing the benefits more.
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum Jesu and thanks for posting your business questions.

    What will your partner be contributing anything other than training to the business, e.g. will he give you access to industry contacts?

    Will any of the investment you make in the business be paid to your partner?

    You could learn a lot by speaking to people who have taken out a franchise of the business in other countries. Do some research to find out who they are, then contact them and get their feedback on doing business with this company. Find out if they are happy, if they are profitable and if they would recommend doing business with this person.
     
  3. ArcSine

    ArcSine
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    Jesu, although it'd likely be a difficult exercise and at least partially built on educated guesswork, you need to give a solid attempt at projecting what kind of revenues, expenses, and bottom line cash flow you think your venture would generate, going forward. The existence of established franchises in other places might be one source of helpful data, but use whatever methodologies are necessary to try and set forth some projections on paper.

    Those forecasts would possibly be very helpful in answering your question about fairness. For one thing, if your forecasts, along with the proposed terms of the arrangement, show that your joint venture partner would be earning a return that's far in excess of the returns he could earn in other opportunities of similar risk (i.e., this deal, in its proposed form, would be a significant windfall for him), then you'd likely have some room for negotiating more favorable terms for yourself. (You'd also have on paper the rationale supporting your negotiation position.) This due to the fact that he'd be rather reluctant to let such a sweet deal slip through his fingers, even if it means he gives up a little more of the pie to make it happen.

    On the other hand, if your projections show that you yourself would be enjoying a significantly better return and cash flow, in comparison to other business opportunities and investments you might have available for the same time, effort, and capital, then it might indicate that while you always want to negotiate, don't play hardball to the point of costing yourself this opportunity.

    Point is, which party enjoys the greater benefit from the arrangement as presently proposed, relative to other available opportunities? In turn, that's a question you can't really answer until you've crunched the numbers on paper as best as you can.

    Beyond that, a few points come to mind...

    • Make absolutely sure you have an understanding of all the details down cold. There seems to be a lot of 'layers' of various ways he can extract cash from the deal; make sure you understand exactly how they are to operate.

    • As Fergal aptly noted, make certain that 100% of your upfront investment is to be deployed solely in the development of your JV business domestically. That is, none of it should be diverted to his other operations.

    • Make sure the agreement spells out in precise detail the expenses which are allowable to be drawn from your JV's profits. There can be no loopholes which allow him to invoice you for expenses he incurs back in his other operations, under the premise that "they benefit your JV" somehow.

    • Determine exactly what kind of geographic exclusivity you'll have. It seems that the profitability of this JV deal will be somewhat a function of how well you can replicate and efficiently leverage the model into multiple operations within your country. If so, you don't want your partner planting similar seeds around you, such that your ability to replicate is hampered.

    I hope all goes well, and do stick with the forum for an ongoing discussion of your progress.
     
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  4. Jesu

    Jesu
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    Thanks a lot for your reply.
    My partner knows few people here who handles legal things. so far he has introduced me to only them.
    apart from that no other industry contacts has been assured.

    one portion of the investment am taking as a loan from my partner which he will take back from the revenue. Other than that my investment
    is only for the company.

    Reg. Franchise people he has not revealed any of their contacts or whereabouts except for the place they operate.

    I'l try to get the franchise information from him so that i can talk to them.
    but they are still working with him so i doubt whether they will be open in giving their opinion regarding their experience in doing business with him.
     
  5. Jesu

    Jesu
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    ArcSine first of all thanks a lot for giving your valuable time and points.

    Yes i am jorting down the things you have mentioned in paper.
    rite now it is 50-50 sharing of benefits for me n him from the revenue as no doubt he is goin to make gud money here if this turns out big even am going to be benefited. Expenses pertaining to our business here is only borne by my company as we are goin to maintain bills and keep that transparent.
    yes there are few layers cuming up where the % of revenues needs to be shared outside. for ex: the local government fee, secretary fee etc.
    as well as we may have to involve his relative as a director too..
    None of my investment will goto his other operations.

    reg. plantin similar seeds around.. he is interested in doing franchise here also in future. but i have made him agree to make it in remote places or
    places where i cant operate practically. i have made sure that i'l be operating in the main area.

    my other concern is about the company shares. hee is not putting down a penny for the setup - am not sure what if tomorrow am going to come up with another idea in the same field and start it under the same company which i have set up in that case his contribution is null and still he will be getting his shares.
    but according to him i have set up this company solely for this purpose.

    am sorry if my question is silly. am just thinking a lot about this with an eye on future..

    Thanks anyways for your time.
     
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  6. Justinjude

    Justinjude
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    Follow simple rule: Divide work on 50:50 ratio and share profits on 50:50 ratio. Otherwise if the profits are huge and the idea is superb, you can settle for a little less.
     
  7. Fergal

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    I'd suggest that you do some research and find out who those franchisees are yourself, you might also be able to find details of some franchisees who are no longer in business or working with your contact. Then make contact with these people, tell them that you are considering going into business with this person and ask them for their feedback. You might be surprised at the useful nuggets of information that they are prepared to pass on to you.
     
  8. Jesu

    Jesu
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    Thanks Justin & Fergal.. I'l get the contact of ex-franchise ppl n see.
     

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